The Fundamental Things Apply ...

Inflation happens in an economy when there is too much money chasing available goods or when there are too few goods for money to be spent on. That is the rather fundamental economics of supply, demand, and pricing.

There are variations on the theme of course. Meles Inc. has managed to engineer the laws of a country into a perversion of the laws of economics onto an eternal accelerating crisis. In Ethiopia today there is a whole lot of money in just a very few hands.

Those few hands also manage and profit from all goods - most of which, by design, are scarce. Ethiopia's government has created a situation where inflation can occur because supply or demand pressures have become equal partners.

The most important 'good' in the economy, grain, is not available as needed. Agricultural policy is based upon the inseparable political and profit motives that mandate government ownership of all land.

That means that the revolutionary feudal aristocracy which defines the ruling party, controls the government, and runs businesses at every level - owns the land, what it manages to produce, and the people on it. They also print money at will.

What has really changed beyond that Meles usually allows ferenjis to feed the folks he is starving after he gets his cut while Mengistu sometimes did not let ferenjis feed the folks he was starving whether or not he got a cut. Today,

-the per capita GNP is lower than that of Somalia-the government monopolies dominate the economy as in Mengistu's day-party owned / crony owned businesses / endowments etc. (the same thing as govt really) dominate the remainder-the rate of foreign investment is among the lowest in the world - indeed it is far exceeded by the amount that the revolutionary feudal aristocracy sends abroad to foreign numbered accounts and foreign investments-Ethiopia is one of the very poorest nations -no surprise, Ethiopia's government is on of the most corrupt on earth-and as naturally follows, Ethiopia's government has one of the most vile human rights records in the world

Meles's government not only lies habitually it would appear that they don't know how not to lie. Here is the setting of this tale

Ethiopia's annual inflation rate increased to 29.6 percent in March, the highest in over a decade, as rising food costs continued to push up consumer prices.

Inflation expanded from 22.9 percent in February, the Addis Ababa-based Central Statistical Agency said in a report today. Food prices climbed 39.4 percent on an annual basis, from 30.2 percent in February, according to the report.

First of all the central statistics office is nought but a fount of lies if you didn't get our point yet. Aren't they the same people who have been claiming economic growth sufficient to propel Ethiopia into the middle income rank of countries in a generation?

So one can safely conclude that inflation is far worse than is being admitted here - unless there is a percentage in exaggeration. Remember, that aside from a few keen & unpublicized IMF and World Bank reports trying to peer into a non-transparent system - there are no numbers available about Ethiopia but those the government makes up.

Here is a glimpse of reality via Dagmawi on one point in "Property rights in a very poor country : tenure insecurity and investment in Ethiopia". The source is the World Bank Policy Research Working Paper No. WPS 4363, November 2007. (pdf file)

This paper provides evidence from one of the poorest countries of the world that the property rights matter for efficiency, investment, and growth. With all land state-owned, the threat of land redistribution never appears far off the agenda.

Land rental and leasing have been made legal, but transfer rights remain restricted and the perception of continuing tenure insecurity remains quite strong. Using a unique panel data set, this study investigates whether transfer rights and tenure insecurity affect household investment decisions, focusing on trees and shrubs.

The panel data estimates suggest that limited perceived transfer rights, and the threat of expropriation, negatively affect long-term investment in Ethiopian agriculture, contributing to the low returns from land and perpetuating low growth and poverty.

Urban and rural life has become so progressively expensive and difficult that living standards have fallen drastically from what some might have imagined to be floor level. So what did Meles have to say about inflation at first?

He blamed the whole thing on bad business people and other malicious economic criminal who were manipulating prices to their own benefit alone. This type of blame is a staple of dictators of all places and all times. Meles must have a Dictator's Almanac on his nightstand where he gets this kind of fluff.

Ethiopia's Prime Minister Meles Zenawi has introduced tough measures to stabilize soaring prices, including a crackdown on what he called "economic criminals," but he says the African nation's economy is essentially sound.

...

Prime Minister Meles Tuesday declared war on what he referred to as greedy business people, blaming them for sharp price increases that boosted Ethiopia's inflation rate to 20 percent. In a speech to parliament, he lashed out at what he called "fraudsters" who recently caused a five to 10-fold increase in the price of salt in a single day.

Mr. Meles announced establishment of a task force to prosecute businesses engaging in what he called "persistent illegal exploitative activities."

"Such greedy and illegal business persons will only respond when each has been identified and punished," he said. "As a result, the government has decided to completely change its approach toward those committing economic crimes. A task force comprising members of the Ministry of Trade and Industry, the federal police and the National Security and Intelligence service has been set up to permanently monitor illicit activities and take prompt legal measures as necessary."

In other words "round up the usual suspects." What this all means is that someone dared to cheat Meles out of his cut or someone has to be blamed until the ferenji reporters discover another halo around the sun and forget about the whole business.

(ethiopundit is proud to have gotten the PM [a loyal reader] out of the practice of using silly phrases such as 'rent seekers' and 'revolutionary democracy' [in English that is - things remain the same in Amharic etc.] but that is what he meant to talk about though.)

Strangely, he did not mention how he was the biggest rent seeker / practicer of economic greed in Ethiopian history, or how any such hoarders or malicious economic actors actually worked for him directly or gave him a big cut of their profits. He did not mention how the Ethiopian economy serves as his own private bank account.

Meles did not mention how entrepreneurship and agricultural productivity are discouraged by the use of hunger and land as weapons to intimidate or bribe. How improving one's land was punished by redistribution on political / personal / bribery grounds.

He did not mention how every aspect of the economy and the fabled commodities exchange is under his personal control. That is from the blood, sweat, and tears of farmers onto truckers, grain boards, local commissars / revolutionary committees, and the 'global economy wired' shiny new offices of the commodities exchange in Addis paid for and taken seriously only by ferenjis.

He did not mention how an increasingly amount of an already large percentage of food is donated. Depending on the news cycle he claims bumper harvests when convenient and is pretend angry about slow Western response to crises when that is convenient. His own foreign investment schedule in numbered Swiss accounts or shell game US real estate is the determining factor here - not the welfare of Ethiopians.

Think that point is a bit harsh? Back in the 80s when the EPLF blockaded shipments of food to Tigray for a while - Meles made sure that anyone who spoke an unkind word about the EPLF in Tigray would be purged and shot. Today after so many lived through the engineered hunger of Mengistu's times, Western aid agencies work in the Ogaden under the condition that they not tell the truth about government atrocities.

Indeed, Trotsky, one of Meles's ideological and practical mentors said that "where the state is the sole landlord - opposition means death by slow starvation." This is all a matter of policy. In Soviet Russia the few percentages of land farmed privately were several orders of magnitude more productive than any official forms of agriculture combined.

Wherever state ownership is the norm - poverty and oppression follow necessarily. Compounded with that the challenge of a fake market economy of revolutionary feudal aristocracy owned businesses who also control the government and its monopolies - Ethiopians don't stand a chance.

Meles prints money just as he feels like and spends it just as he feels. Much of the national budget is in the form of direct grants from the West and given the anemia of the rest of the economy the success of his national kleptocracy is based on forced monopolies and going at ferenji aid with two hands and an open mouth. His web of businesses and corruption suck up most of the available money into a very few hands.

Meles did not mention how agricultural production is always falling and the distorting effect of reliance on food aid. Food aid is a bounty of harvests for Meles. There are literally billions in contracts for office construction, shipping, salaries (no-show ones and kickbacks), fees, taxes, etc to siphon off before the slightest amount that doesn't get misdirected into the domestic grain market actually reaches the starving.

So for two decades Meles has been discouraging agricultural production and he has encouraged dependence on economy distorting foreign aid. Note that there is no inherent reason that Ethiopians should starve or that Ethiopian land is not productive.

Policies are what matter. The major factor in a population starving beyond what they are allowed to do for themselves is how politically powerless they are. This all fits the preference of Meles for relying on ferenji partners rather than the Ethiopian people in a civil contract of any form.

The ferenjis will use him as convenient and even will pay him extra not to cause harm to his people within sight of embassies or reporters. Ethiopians of every stripe just want him gone. Given his objective of staying in power for as long as possible and profiting from it as long as possible - Meles is making a rational decision here. He is looking out for #1.

Again via Dagmawi this report is instructive and bears repeating in detail: Urban Labour Markets in Ethiopia: Challenges and Prospects World Bank, March 2007.

The performance of urban labour markets in Ethiopia has been disappointing. ... Jobs growth has been slow and way below what is needed to productively employ urban residents looking for work; unemployment is thus high. Even for those who have income earning opportunities, these are typically in the informal sector and very low paid.

...

Many new leases(particularly outside Addis Ababa), are allotted at administrative prices that are several times lower than auction prices for similar land. There is no system of evaluating these indirect land-related subsidies obtained by receivers of these 'administrative-price' leases. Finally, the best lands are often allocated for negotiations rather than being placed on auction (e.g. around Lake Tana in Bahir Dar). Thus, resulting prices of land within the government land allocation system are substantially distorted and can be prone to corruption.

...

While ex-factory prices are kept below market prices, there is a thriving secondary market in cement that is fuelled by those who have the ability to purchase cement at the ex-factory price

...

In cement, for many years a party-owned firm and a State-Owned-Enterprise have been the only domestic suppliers, each enjoying rapid increases in demand. In the financial sector, a bank affiliated with an endowment currently has the highest return of equity among private banks, and the microfinance institution owned by an endowment has grown to one of the largest in Africa

...

and a comparison to the 'Tiger' economies (Taiwan and the ruling KMT in this case) of Asia that Meles Inc. likes to pretend it is on the same planet with

A key difference is that the KMT has released detailed information on its business holdings, while Ethiopia's endowments are fully opaque

Examples of corruption in the banking system are legion and natural. After all Meles runs them and he takes loans from them using managers beholden to him and businesses he profits from in a simple shell game that he wins every time.

Given all of this the result that the Ethiopian economy is doing very poorly and suffering from growing levels of inflation is no surprise. The most important economic factor - grain is in short supply and the most harmful, factor corruption is present in abundance.

The food aid that substitutes for production is subject to manipulation and corruption at unheard of levels and depending on political factors may never reach those for whom it is intended anyway. Meles knows there are too many other ways to make money from it.

The money thus generated and that from the entire crooked economy ends up in a very few hands. The modern economy actually touches very few people in cities only. All of that money is sufficient to distort the urban economy with great inflationary pressure because unless it is shipped out it has no place to go.

Ethiopia has no market economy that can handle any crisis with either rational management decisions or the independent decisions of millions of producers and consumers. Economic policy is at the whim of one man and the corrupt revolutionary feudal aristocracy he commands.

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One new factor in all of this is the global food crisis. Drought is blamed on the supply in Australia which has ceased important rice exports to Asia. Increased consumption in China and India is also blamed on the demand side.

In our opinion, the global food crisis has nothing to do with what is going on in Ethiopia.

Sure, Meles came across the global excuse as an excuse a week or so after blaming 'rent seekers' etc. and wished he had thought of it beforehand. After that the link was made to the world crisis with lip smacking delight.

This leaves out the reality that inflation in Ethiopia was high long before this and was high back in the 90s as well. In addition, it leaves out the reality that Ethiopia is effectively insulated from the global food economy.

Ethiopians produce a meager amount of food to begin with because they are not allowed to produce more. The remainder is imported as aid from foreign governments. Whatever residual deficit there is (after every one in higher up in the food chain than the 70 million regular Ethiopians have taken their cut) just doesn't matter and is chalked up as statistical ruined lives from starvation and malnutrition.

One can safely assume that much of the needed domestic grain is exported and that much of the food grain is exported by Meles Inc. for profit regardless of need anywhere. After all we are talking about the Meles Inc. here.

Of course, this may all be far reaching and far seeing opportunism on the part of Meles to profit from the coming food crisis by sending food out of Ethiopia. Hey, you think he got that MBA just to run Mega? Meles does make Gordon Gekko seem like Mother Theresa doesn't he? That makes about as much sense as blaming traders who may have just paid him less than his normal share.

Regardless, the price of grain in Bombay or Cairo doesn't have much to do with that in Addis because the whole Ethiopian food economy is really a perverse isolated example of everything to do wrong in the world of economics.

So no matter what Meles and his gang have to say about linking global food issues to Ethiopia - believe none of it. Why not wonder why things were already so bad in Ethiopia for years when food was plentiful everywhere else.

You should also note in the coming weeks that even as prices rise worldwide and turmoil results in some places that most governments will actually look after their people - unlike Meles Inc.

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The mess that the Ethiopian economy is in knocks out one leg of justifications for Meles Inc. rule - namely that they are 'keeping the trains running on time'. They are doing no such thing and never have. Indeed, given the current setup the trains never will run on time. Everything regarding the personal economic portfolio of Meles (especially abroad) will, however, proceed on schedule.

The next leg of the Melesian justification tripod is his utility to the West. Secondarily this is a matter of not hurting his people too much and too visibly for Western tastes. Primarily, it has more too do with low expectations for Ethiopians in general and Somalis in particular. No matter how evident it is that Western leaders find shaking the hand of Meles distasteful and actually repulsive - they still pay for his place in power.

Apart from nonsense about halos around the sun (how does that fit in with a revolutionary democratic world view anyway?) absolutely no one on the planet is taking the latest round of elections seriously. The last and final leg of justification is Meles himself and his personal commitment to intimidate, kill, and harm as many Ethiopians as possible wherever they may be found.

Ultimately, this is what it is all about.

Meles has been lying and breaking fundamental rules of humanity (not to mention economics) for over three and a half decades now. The roll call of victims extends from thousands in his own revolutionary party and hundreds of thousands of innocents in rural Tigray starting in the 70s all the way to the peaceful opposition and tens of millions everywhere in Ethiopia today.

But ... the fundamental rules still apply as time goes by. Whatever his personal issues and motivations may be - he is continuing to drive Ethiopia on an ever steeper road to hell ... and that is clear to every honest observer.

Wonder if things can ever get worse in Ethiopa? Clearly they can and Meles will always be ready with a lie, however absurd it may be along with a willingness to kill to ensure he will be around until the very last moment.

When Meles speaks of "persistent illegal exploitative activities" he is, of course, innocent by definition - because he writes the laws as he pleases and he enforces them as he pleases.

He knows exactly what he is doing and so do the development partners who pay him.